Retail Supply Shows Signs of Catching Up with Demand

Houston’s retail supply is finally beginning to satiate the red-hot demand of the latest growth cycle.

The city’s retail construction pipeline decreased in the first quarter of this year, settling at 2.7 million square feet. This represents a significant, but ultimately inevitable decrease from the cycle high of 4.2 million square feet. As another sign the market is beginning to normalize, vacancy inched up across Houston to 5.1 percent. However, both vacancy and availability remain well below their respective 10-year averages.

Grocery continues to be one of the most active and interesting sectors within Houston. Brands are evolving to keep pace with shifting consumer demands and the changing Houston landscape. In restricted urban cores, like Houston’s inner loop, where total retail vacancy is just 3.7 percent, grocers are getting creative with smaller footprints and vertical layouts that work within mixed-use and residential projects. With regards to their offerings, brands across the board are increasing their prepared foods sections and integrating technology into the shopping experience to streamline the buying process and optimize convenience.

Looking forward, Houston’s retail supply will continue to increase as construction projects deliver. Healthy demand will contribute to positive net absorption throughout the year. While vacancy is expected to remain mostly unchanged as supply and demand rebalance. Overall, though construction is falling, key indicators point to a healthy level of growth for the Houston retail market in 2017.

Mark Raines is a Senior Vice President and the Retail Brokerage lead for JLL Houston. In his role, Mark focuses on delivering strategic and innovative real estate solutions that produce superior results and create exceptional value for clients. Mark has more than 15 years of commercial real estate experience and is a member of the International Council of Shopping Centers (ICSC).